“There’s a method in our madness.”
That’s how Overstock founder Patrick Byrne describes the often unexpected moves that have come to characterize his efforts to rethink Wall Street with blockchain. And what began in the lab as far back as 2014, took yet another step yesterday when the firm announced (not without a few hiccups) that its initial coin offering (ICO) for subsidiary tZERO had commenced.
First revealed in October, the company is currently seeking to raise $250 million through a pre-sale for “strategic purchasers” ending Jan. 18. A subsequent sale period may run through Feb. 18. Either sale period may be changed at any time by the company, and both are limited to accredited investors.
But for Byrne and Overstock, this is just one piece of an expanding puzzle.
Last week, for example, Byrne dropped another bombshell, revealing he’s weighing whether to sell the e-commerce business that helped him make his name. The reason? He wants to devote more of his limited time to a new blockchain property registry system.
And while that might sound abrupt (or even alarming) to potential purchasers, Byrne quickly soothed worries, adding all his recent efforts fit together.
“We’ve been designing this tech stack for three years,” he said.
Speaking at CoinDesk’s New York headquarters, Byrne explained how he’s partnering with Peruvian economist and “The Mystery of Capital” author Hernando de Soto to launch a new Overstock subsidiary, called De Soto Inc., that he believes will be compatible with the token sale it will carry out for tZERO.
As previously reported by CoinDesk, tZERO is an SEC-regulated alternative trading system (ATS) – also known on Wall Street as a “dark pool.” As De Soto Inc. unlocks capital in the developing world, tZERO will be able to serve it as a capital market, at scale. Since each venture will have blockchain technology at their core, there will be a natural symbiosis, according to Byrne.
On his new moves, Byrne said:
“I feel an ethical obligation toward re-orienting my life so it’s about getting this done. We think we’ve got five years and 5 billion people we can change the world for.”
Following the token
Yet, Byrne and de Soto’s long-term vision will need to follow the tZERO sale.
Byrne said that the interest in the offering, expected to be one of the largest-ever in the industry, has been intense, remarking: “We know we’re sort of hyper-oversubscribed.”
Notably, Overstock has not disclosed the percentage of its token pool on offering, price per token nor the discount available to participants in the offering.
That said, non-institutional purchases shouldn’t fear that big investors will get the entire sale in the first round. “That’s not Patrick at all,” Steven Nerayoff, CEO of Alchemist, a blockchain consulting company and official advisor to the tZERO sale told CoinDesk. “Patrick could sell this out in a very quick fashion through institutions, but that was not his desire.”
Nerayoff promised a sizable public sale, following the presale.
While providing an equity stake in tZERO, the token will also be used to pay the fees associated with all the different kinds of trades on the exchange, including its digital locate receipts, which Byrne believes will make what he calls market “mischief,” such as naked short selling, impossible.
This brings the conversation back to one of Byrne’s favorites, the shortcomings of Wall Street offerings.
“The conventional market has split trading and settlement, and in that split, there are opportunities for lots of mischief. On the blockchain, you reunite the trade with the settlement, and all that opportunity goes away,” Byrne explained.
Closing the opportunities for market manipulation, Byrne argued, shuts down some of the most lucrative investment rights in the prime brokerage divisions of major investment banks.
“It’s a blockchain system that’s an arrow, it’s a dagger, right at the heart of prime brokerage revenue,” he said.
Tradeable property
And in parallel with his dreams of disrupting the current financial system, Byrne wants to bolster people’s individual wealth in the developing world.
To do this, Byrne and de Soto are looking to establish tradeable property titles in regions where those haven’t been available, so individuals can then trade the capital that creates on tZERO.
“If you can get this right, it would release so much capital into the world,” Byrne said, pointing to estimates from Overstock that there are $14 trillion in “dead capital” globally.
Indeed, Byrne makes the idea seem so simple, you might wonder why it hasn’t been done before. But according to de Soto, the West just doesn’t understand the developing world. De Soto explained it’s not that property in the developing world isn’t titled, it’s just that those titles aren’t in traditional formats banks can work with.
De Soto and his collaborators have developed the expertise to locate those titles and move those to a blockchain so that financial institutions can work with them.
Based on that, those property owners will then be able to borrow money using their property as collateral, which could allow those individuals to start businesses or otherwise grow their wealth.
De Soto said:
“We start off with land … but it’s about all assets.”
The timeline
Ultimately, though, this will rest on the ultimate use of tZERO by the global markets, though Byrne believes a limited set of options will allow it to easily gain marketshare.
“We have the only SEC compliant ATS in the world that can trade blockchain instruments,” Byrne said.
Property titles from one country will start being added to the blockchain between March and April, in an effort to show how the system will work. While neither de Soto nor Byrne would specify which country was to be added first, de Soto said, “It won’t be any old place,” hinting at a country where property titles are a particularly messy system today.
The system will roll out globally shortly thereafter, said Byrne.
While blockchain-based land registry initiatives have been piloted before, they have all happened in places that want to make already functional title systems more efficient, such as Britain and Sweden.
In this way, de Soto said about the new project:
“It’s not disruptive. It’s foundational.”
CoinDesk is following this developing story.
Patrick Byrne image via a Forum for Economic Education YouTube video